REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2024

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 8. – REVENUE RECOGNITION

The Company’s revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes. Additional revenues are generated from sale of the Company’s proprietary low nicotine content cigarettes, sold under the brand name VLN^®, or research cigarettes sold under the brand name SPECTRUM^®.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For certain CMO contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units to customers and is recognized net of cash discounts, sales returns and allowances. There was no allowance for discounts or returns at June 30, 2024 and December 31, 2023.

Disaggregation of Revenue

The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by the timing of revenue. Revenue recognized from Tobacco products transferred to customers over time represented 66% and 63%, respectively, of total Tobacco revenue for the three and six months ended June 30, 2024, compared to 67% and 66%, respectively, for the three and six months ended June 30, 2023.

The following table presents net revenue by product line:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Contract Manufacturing
Cigarettes	$	4,107	$	3,797	$	6,867	$	8,286
Filtered Cigars		3,303		3,931		6,927		8,326
Cigarillos		552		-		552		-
Total Contract Manufacturing		7,962		7,728		14,346		16,612
VLN®		(15)		322		70		365
Total Product Line Revenues	$	7,947	$	8,050	$	14,416	$	16,977

The following tables present net revenues by significant customers, which are defined as any customer who individually represents 10% or more of disaggregated product line net revenues:

	Three Months Ended
	June 30,
	2024		2023
Customer A	34.37	%	29.42	%
Customer B	21.37	%	14.34	%
Customer C	7.46	%	27.26	%
Customer D	20.93	%	17.92	%
All other customers	15.87	%	11.06	%

	Six Months Ended
	June 30,
	2024		2023
Customer A	36.25	%	27.68	%
Customer B	22.87	%	16.46	%
Customer C	14.16	%	27.15	%
Customer D	13.95	%	14.75	%
All other customers	12.77	%	13.96	%

Contract Assets and Liabilities

Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed. These receivables are included as Accounts receivable, net on the Condensed Consolidated Balance Sheets. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within credit terms up to 30 days after shipment. Deferred income (contract liabilities) relates to down payments received from customers in advance of satisfying a performance obligation and is included as Deferred income on the Condensed Consolidated Balance Sheets.

Total contract assets and contract liabilities are as follows:

	June 30,		December 31,
	2024		2023
Unbilled receivables	$	1,135	$	1,053
Deferred income		(389)		(726)
Net contract assets	$	746	$	327

During the six months ended June 30, 2024, the Company recognized $726 of revenue that was included in the contract liability balance as of December 31, 2023. During the six months ended June 30, 2023, the Company recognized $688 of revenue that was included in the contract asset balance as of December 31, 2022.